1969 (9) TMI 61 - SC - Companies Law

Whether such a corporate body may be considered to be a fit and proper person for appointment or re-appointment as managing agent, and that the enquiry must cover all relevant activities and actions of the directors of the corporate body? Held that - The High Court was right in holding that in determining whether Govan Brothers is a person fit and proper to be re-appointed managing agent, the past conduct and actings which were relevant to the issue had to be taken into account, i.e., the Board had to consider the entire conduct and actings past and present of the directors of Govan Brothers before rejecting the petition filed by the Rampur Company. The appeal filed by the Rampur Company must therefore fail. It must, however, be pointed out that the time during which the managing agency of Govan Brothers is to remain in operation is fast running out. The Solicitor-General appearing on behalf of the Company Law Board and the Union of India has assured us that with the co-operation of the Rampur Company, the Board will take steps to dispose of the application within one month from the date on which the order reaches the Company Law Board.

Issues Involved:

1. Validity of the reappointment of Govan Brothers as managing agent of Rampur Distillery Company Ltd.
2. The scope of the Central Government's power under Section 326 of the Companies Act, 1956.
3. The relevance of past conduct in determining the fitness and propriety of a managing agent.
4. Judicial review of the Central Government's satisfaction under Section 326(2) of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Validity of the reappointment of Govan Brothers as managing agent of Rampur Distillery Company Ltd.:

The Rampur Company reappointed Govan Brothers as its managing agent multiple times, with the latest reappointment being for five years from 15th August 1965. The Central Government, through the Company Law Board, initially extended the tenure but later rejected further extensions. The High Court initially quashed the Board's decision, but upon remand, the petition was dismissed. The Supreme Court upheld the High Court's decision, emphasizing that the Board must consider the entire conduct and actings of the directors of Govan Brothers before rejecting the petition.

2. The scope of the Central Government's power under Section 326 of the Companies Act, 1956:

Section 326(2) stipulates that the Central Government must be satisfied that:
(a) It is not against the public interest to allow the company to have a managing agent.
(b) The managing agent proposed is a fit and proper person to be appointed or re-appointed.
(c) The conditions of the managing agency agreement proposed are fair and reasonable.

The Supreme Court noted that the satisfaction must be based on an objective appraisal of relevant materials and that the power is quasi-judicial, requiring adherence to natural justice principles. The Board's decision must be free from bias, predilection, and prejudice.

3. The relevance of past conduct in determining the fitness and propriety of a managing agent:

The Court emphasized that past acts and conduct cannot be ignored in determining whether a person is fit and proper to be appointed as a managing agent. The Board must consider the acts and activities, past and present, the interests of the shareholders, the creditors, and the general public. The Board had restricted itself to the findings of the Vivian Bose Commission, which criticized V. H. Dalmia's conduct in the 1940s. The Supreme Court held that the Board must consider all relevant circumstances, including the progress made by the Rampur Company under Dalmia's management and the pending criminal complaint against him.

4. Judicial review of the Central Government's satisfaction under Section 326(2) of the Companies Act, 1956:

The Court rejected the argument that the Central Government's satisfaction is immune from judicial scrutiny. The satisfaction must be the result of an objective appraisal of relevant materials. The Court can review whether the Central Government misapprehended the nature of the conditions, proceeded on irrelevant materials, or ignored relevant materials. The power is quasi-judicial, implying a duty to act judicially, considering all relevant matters and ignoring irrelevant ones. The High Court is not an appellate body but must ensure that the Board considered all relevant circumstances and did not base its decision on irrelevant or extraneous matters.

Conclusion:

The appeals by the Rampur Company and the Company Law Board were dismissed. The Supreme Court upheld the High Court's decision that the Board must consider the entire conduct and actings of the directors of Govan Brothers in determining their fitness and propriety. The Solicitor-General assured that the Board would dispose of the application within one month with the cooperation of the Rampur Company. There was no order as to costs in the Supreme Court.

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